Why Store Closings May Actually Be a Good Sign for Retailers
Earlier this month, Radio Shack announced plans to close up to 1,100 stores in the U.S., following a dismal fourth quarter of 2013, where sales were down 19%. Meanwhile, Staples also announced it will close 225 stores in North America by 2015. The office center's sales also fell in the fourth quarter, though by a less dramatic 10.6%.
Taken one way, news of these closings could be the result of a particular outlet's woes. But both companies have been careful in their public statements to brand the moves as opportunities to recast themselves. RadioShack CEO Joseph Magnacca told analysts in a conference call that Radio Shack is "overstored" and has too many retail outlets. And Staples CEO Ron Sargent said in USA Today, "With nearly half our sales generated online today, we're meeting the changing needs of business customers."
DealNews reached out to retail experts to better understand whether these store closings are as bad as they might seem, or if they point to something greater (and smarter) on the digital side of things.
Retail Contracts, Online Expands
Peter LaMotte, Senior Vice President of LEVICK, a firm that specializes in digital communications and corporate reputation, says that some retailers are late to the game, realizing that online sales are "increasing exponentially, while their brick-and-mortar locations are steadily decreasing."
"It's a smart move to try to even out costs," he says. "But certain brands will never officially do away with the brick-and-mortar stores because their flagship locations are purposed for marketing more than generating business." He adds that Staples and Radio Shack are by no means unique in making tough calls on their stores, as Office Depot, Office Max, Abercrombie & Fitch, and Macy's have all faced similar decisions recently. Of those four, Abercrombie & Fitch saw a stock price rebound since mid-January, in part because of its move to focus on e-commerce growth.
LaMotte is not the only one who sees a combination strategy working. "Overall, I would expect retail bricks and mortar to grow in the e-commerce growth era," says Ben Peterson, Senior Vice President of Global Customer Solutions at Prologis, an industrial real estate logistics firm. "All retailers will be forced to shift their strategies so their store floors are more productive and more closely associated with the online experience for shoppers."
Consumers & Retailers Benefit from eCommerce
"Retail store locations going digital is great news for the retailer and the consumer – a sign of strength, not weakness," says Gabriel Shaoolian, Founder and CEO of Blue Fountain Media, an online marketing firm. "It allows the [retailer] to expand its customer base outside of the neighborhood to reach customers it would have never reached otherwise."
For Shaoolian, this theory is supported by online spending stats, which exploded nearly six-fold between 2000 and 2009. What's more, online shoppers in the United States are projected to spend $327 billion in 2016, up 45% from $226 billion in 2012, according to projections by Forrester Research.
But as you might expect, online growth doesn't translate into new retail locations. "The need for a traditional brick-and-mortar presence will continue to dissipate as the profitability and sophistication of the consumer experience expands across the eCommerce channel," says Ray Gottschalk, Executive Vice President and Managing Director of Tris3ct, an independent ad agency in Los Angeles that specializes in retail marketing.
A Focus on Mobile
Opening up a digital storefront is a far cry from desperation, at least if you look at the statistics on mobile advertising; five years ago, mobile advertising didn't even exist! Starting with a zero ad share of the U.S. major media market in 2009, mobile will skyrocket to a projected 20% in 2016, according to media research firm Borrell Associates.
And if advertisers are flocking to mobile, it makes sense that consumers are there, too. "I don't think there's anyone who doesn't use a mobile phone, and social promotions will only grow," says Larry Shaw, Borrell's Vice President of Research. Shaoolian adds, "Digital commerce reaches people exactly where they are – on their mobile devices!"
Finding a Balance
For companies such as Radio Shack and Staples, moving making a concentrated effort to boost online sales means trying to strike a balance. Real stores are staffed by real people, and if you've visited a Radio Shack store recently, you know that the sales associates there are often very efficient at greeting customers and meeting their needs.
"Brands will lose the customer service-oriented association and it will be replaced with convenience," LaMotte says. "This will have negative effects on the brand loyalty that comes directly from face-to-face interactions." But that said, "streamlining expenses frees up capital to be more innovative with online platforms and marketing campaigns."
In the end, the continued health of traditional retail operations may not be so much a matter of bricks vs. bytes. Mobile may make our purchasing lives more convenient, but there's nothing like popping in a physical storefront on the spur of the moment, or just to get out for an afternoon. However, as LaMotte points out, digital media can indeed bring attention to a new address, as was the case when Gucci opened its men's flagship store in the heart of Milan's historic Brera district last June. "The brand is allowing consumers to view the inside of the store through Google Maps by searching the store on Google or visiting the store's Google+ page," LaMotte says.
In other words, who says newfangled digital and the old-fashioned storefront can't meet up in style?
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